Mortgage interest deductible if renting out a room in your flat?

beatallica

Quite simply, I don't think the rent-a-room scheme is helpful for me because of low threshold (4,250).

So if I buy a 2 bed flat (NOT as a buy to let but as a buy to live and DO INFORM lender about my intentions of renting the other room out) and rent out 1 room to someone else, then would I be able to deduct the mortgage interest from my rental income? If yes, how would they split what ratio of mortgage interest ascribes to that room rather than the room I live in (half half?).

As I plan to take a high LtV mortgage (90%), this would obviously have a big impact on my tax bill so would appreciate any advice as I find conflicting views when searching online.

Many thanks !

ACG

no you cant.

But the income up to a certain amount is tax free.

beatallica

ACG wrote: »

no you cant.

But the income up to a certain amount is tax free.

You mean up to £4,250 per https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme ?

I understand there are 2 options (as here) where either I can opt for this "rent a room" scheme which is not that attractive for me or else get deductions for expenses. And I understand these are 2 completely separate options.

Only question is whether mortgage interest (which is for sure deductible for buy to let mortgages) would be deductible in this case as well or not? any links to that respect would be very helpful. thanks

beatallica

Example this website states:

"Those who let a room in their own home cannot claim mortgage interest costs as an expense, unlike buy-to-let landlords who are permitted to offset interest against tax."

Trying to get some kind of official HMRC page that explains this (and the rationale behind it !!)

Cheers

Daniel54

beatallica wrote: »

Example this website states:

"Those who let a room in their own home cannot claim mortgage interest costs as an expense, unlike buy-to-let landlords who are permitted to offset interest against tax."

Trying to get some kind of official HMRC page that explains this (and the rationale behind it !!)

Cheers

BTL lending is commercial and unregulated -hence the need for a 25% deposit and the higher interest rates.A BTL investor does so in order to make profit (which are taxable)

Residential lending is regulated and is for people to buy their homes and live in them.A lodger is not a tenant and the purpose of having one would be to offset your costs,not to make a profit

If you are trying to find legitimate ways of making a profit from a residential mortgage ( and that is your intention from the start) then you might as well stop now

If you are worried about the costs of a 90% mortgage it is not at all clear why up to £350 tax free per month would not be helpful to you

wwtrend

Buy to let is a business. Buying to let out a property to tenants imposes legal responsibilities on the landlord and safeguards for tenants. Whilst interest may be a deductible expense tax is paid on the income and capital gains on the property when sold. You will not get a 90% mortgage on a buy to let property more likely 75%. It is not a residential mortgage or designed for you to live in if that is what you plan to do. Lodgers do not have any rights on security of tenancy and the home owner does not have the same legal responsibilities of a landlord imposed upon them. £4250 is a significant amount of tax free income on top of the normal £10K individual allowance.

You are not comparing like with like which is why you are struggling to find a rationale. The tax free income allowance on the rent a room scheme is because there is a shortage of this type of accommodation. Housing benefit rules will only allow single individuals over 35 to have more than one room. The bedroom tax where individuals claiming benefit had managed to secure accommodation over and above their entitlement was going to penalise claimants. So lodgers would help stop people falling into debt and provide the type of accommodation of which councils were short on. The tax break was by way of an incentive to home owners.

Many councils have implemented local regulations (S4) to the Houses of Multiple Occupancy where if there are three or more unrelated individuals living on a property which could be an owner and two tenants then the property becomes subject to licensing regulations and fees. If the property was purchased on a residential mortgage the mortgage company would likely charge to agree to the tenancies. Most will however allow two lodgers for a home owner on a residential mortgage. I have known landlords who it has taken upto a year to get them removed after they have stopped paying rent and landlords losing the property as they are unable to make the payments on a property for which no rent is being paid. Lodgers have no such rights and only require whatever notice you have agreed in your lodger agreement. Normally one month.

Buy to let mortgages will also be considered on the income from the property if you have a history as a landlord. Residential mortgages will not. Therefore if the only way you can justify repayments for a residential mortgage is by saying you intend to take in lodgers you are unlikely to be given the mortgage. It is based on your actual income and now taking into account outgoings. People only get permission to rent a room from a mortgage company once they already own the property. There may be exceptions but if there are, you will be paying for it in the mortgage rate given.

Hope this helps.

Foxy-Stoat_3

How much more than £355 are you planning on renting a room out for?

ACG

Also bare in mind, if you were to buy a property to rent out at some point you will have CGT to pay.

All of your recent posts are very unusual. Why dont you just say what it is you want to achieve?

As it stands your ideas appear to be all over the place. If you genuinely cant afford to buy somewhere, dont.